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. Last Updated: 07/27/2016

Era of Trading House Draws to End, Finally

For over three decades most of Japan's largest electronics manufacturers have channelled their sales in Russia through Japanese trading houses. Only today does it look as if the era of the trading house is finally coming to a close. One by one Japanese electronics manufacturers are ending exclusive links with Japanese trading houses. In the last three years Sony, Aiwa, Sanyo, Canon and, most recently, Oki all ended exclusive relationships with trading houses and opened their own Moscow representative offices and established their own networks of resellers. Without doubt more will follow.

Under Japan's postwar constitution, the huge vertically integrated Japanese conglomerates, or zaibatsu, were placed under tight trading restrictions. As a result, specialist trading houses were set up to handle the international sales of big manufacturers. In highly competitive high tech markets this model began to wither in the 1980s. Japanese trading houses are no longer found selling electronics and IT products in the United States and Western Europe. In Russia, however, the model is only coming under serious pressure.

A trading house provides a very low cost and low risk method for a manufacturer to enter a new market. Once that market matures, however, it has some serious drawbacks. Since such companies are set up primarily for commerce, they are sometimes not in a position to organize full service on a manufacturers' line of products. This means dealers either need to do service themselves or faulty goods need to be returned to Japan.

A trading house is also not usually the ideal distributor. They rarely have the will or the resources necessary to organize the levels of marketing necessary to support electronics products in competitive markets. Japanese companies also often fall victim to fluctuations in the value of the yen which can make their local prices (denominated in U.S. dollars) totally uncompetitive.

The net result has been that several Japanese manufacturers lost control of their distribution channels in Russia. When their trading company-partner was not able to offer attractive enough prices in Russia, the largest local distributors bought elsewhere. I was once told an apocryphal story of how a high powered delegation from one of the world's largest television manufacturers visited the largest distributor of their products in Russia. The company in question bought all of its television sets in the United States. When this group of dignitaries could not offer him good enough prices, the owner sent the delegation packing.

There are other cases in which Japanese manufacturers are market leaders in Russia, but have only a vague idea of how their products get here. When goods are mainly coming from the United States this can be a serious problem. Using 110 volt (U.S. standard) products in Russia can mean they may work poorly or are more liable to break. I once went to buy a telephone set in a well-known Russian chain of electronics shops. I was presented with a 100 volt U.S. model of the telephone plus a cheap Chinese voltage converter. The shop apparently did not care that this telephone was never designed for use in Russia -- but my opinion of the manufacturer went down a few notches.

These situations are not the fault of trading houses, which cannot control the international pricing polices of the manufacturers it represents. They are simply an outdated method of doing business which has survived where manufacturers have been too cautious to change. That they have survived here for so long is an indication of how cautious Japanese companies are about Russia.

Robert Farish is the editor of Computer Business Russia. Fax: 929-9958. E-mail: